Criminal Immigration Enforcement vs. Employers: Will It Be the New Normal?

Understanding the Risk

During the administration of George W. Bush, employers, including IFCO Systems, were investigated for immigration crimes. Immigration and Customs Enforcement (ICE), the criminal enforcement arm at Homeland Security, raided 40 of IFCO Systems' plants, resulting in the arrests of seven managers and 1,187 workers in 26 states and the company paying over $20 million in penalties and forfeiture. Homeland Security Secretary Michael Chertoff, reporting on the IFCO worksite enforcement actions, stated in April 2006:

These enforcement actions demonstrate that this department has no patience for employers who tolerate or perpetuate a shadow economy. We intend to find employers who knowingly or recklessly hire unauthorized workers and we will use every authority within our power to shut down businesses that exploit an illegal workforce to turn a profit.

See, e.g., Immigration Agents Raid 40 Plants and Arrest Seven Managers of IFCO and 1,187 of the Companys Illegal Alien Employees in 26 States.

The Bush administration's prime focus, however, was deportation of illegal aliens, including unauthorized workers — those workers who did not have papers such as a green card or other document allowing them to work in the United States — and any culpable supervisor who may have assisted in obtaining false documents, rather than the employer. See, e.g., IFCO Reaches Non-Prosecution Settlement on Immigration Investigation.

During the first term of the Obama Administration, ICE explained the Executive Branch's enforcement priorities as follows:

ICE's worksite enforcement program targets unscrupulous employers who prey upon [undocumented] aliens by subjecting them to poor or unsafe working conditions or paying them sub-standard wages. ICE's multi-faceted worksite enforcement strategy targets employers, whose business model is based upon exploiting an unauthorized workforce … . Employers hire undocumented workers for reasons such as: obtaining a financial advantage over their competitors by paying lower wages, offering few if any benefits, failing to comply with tax laws, and avoiding health and safety related complaints.

Hearing on “Priorities Enforcing Immigration Law” Before the H. Approp. Comm. Subcomm. on Homeland Sec., 111th Cong. 7 (2009) (statement of Marcy M. Forman, then-Director, Investigations, ICE) (“Forman Statement”)).

By the second term, the Obama Administration shifted to focusing more on civil I-9 audits — audits of the immigration documents that must be completed prior to hiring any employee — which resulted in significant civil fines being collected, but few criminal cases brought. Those criminal actions that were brought, in keeping with the Administration's priorities, had fairly egregious facts, generally involving employers abusing the unauthorized workforce. See, e.g., Two Defendants Sentenced for Role in Forced Labor Scheme That Exploited Guatemalan Minors at Ohio Egg Farm.

Historically, in fact, under most Administrations, the cases that have been investigated and resolved criminally tended to be those with fact patterns that went beyond merely the hiring of unauthorized workers. Employers who faced criminal charges were alleged to have provided the unauthorized workers with false authorization papers and/or encouraged them to obtain such documents, provided additional monies to employees specifically to obtain false documentation, assisted in tax evasion by paying the employees in cash, or engaged in obstruction of the ICE investigation. (See, e.g., 4 Houston residents charged with employing illegal aliens (employer provided identities of former authorized employees to unauthorized applicants); US v Agriprocessors, Inc., No. CR 08-1324 (N.D. IA, March 31, 2009)) (provided additional monies to employees specifically to obtain false documentation)); US v Shum, 496 F. 3d 390 (5th Circuit 2007); Novi Restaurant Owner and Wife Indicted for Harboring Undocuments [sic] Immigrants; IFCO Senior Managers Plead Guilty to Unlawful Employment of Illegal Aliens; Northern California Restaurant Owner Pleads Guilty to Obstructing the Internal Revenue Laws and Harboring Illegal Aliens for Profit (employees paid in cash and employer put profits in overseas bank account); Four Restaurant Owner/Managers in State College Area Sentenced and Property Forfeited in Illegal Alien Harboring Case (employees paid in cash well below minimum wage); Zavala v Wal-Mart Stores, Inc., 393 F. Supp 2d. 295, 301 (D.N.J. 2005); Former Deportation Officer Indicted for Accepting Bribes, Harboring an Undocumented Immigrant and Lying to U.S. Immigration Authorities (lied to ICE in representing would not hire unauthorized workers in hair salon for which he received approval); US v Kahlon, H-08-CR-00521d-1 (SD Texas July 1, 2008) (employees told to leave because ICE was coming).)

Rare was the criminal case where the strongest allegation ICE could make was that the employer knowingly hired employees without work authorization papers, but where the facts suggested that the workers were treated the same as authorized workers and there was no evidence of any active involvement of the employer in obtaining false documents. And those cases tended to result in non-prosecution agreements. Given President Trump's election promises to U.S. workers, this is likely to change, suggesting it is time to get reacquainted with the elements of immigration crimes and how investigations of these crimes generally start.

The Basics

There are two basic statutes available to the Department of Justice (DOJ) under which to investigate and prosecute employers who employ unauthorized workers. The harboring statute, 8 USC 1324(a)(1)(A)(iii), is a felony that, in addition to criminalizing what would be viewed by a layperson as harboring (transporting, concealing, shielding from detection), also includes a provision that punishes “encouraging … an alien to reside in the United States.” This has been interpreted as “conduct tending substantially to facilitate the alien's remaining in the United States illegally.” United States v. Kim, 193, F 3d 567 (2d Cir 1999). When the Immigration Reform and Control Act (IRCA) was enacted in 1986, it expressly eliminated the “employment” carve out from the harboring statute; no longer could mere knowing employment of unauthorized workers be excluded from harboring. The DOJ has, in turn, taken the position that providing employment can satisfy the harboring statute.

When applied to employers who employ the alien for “commercial gain,” a conviction under that statute could result in a sentence of up to 10 years in prison and significant penalties. If physical harm should result from the employer's actions, the prison term could increase to 20 years and, if the alien dies, life in prison. Furthermore, because harboring is a felony, the DOJ could move to forfeit all profits resulting from the hires.

The other statute available to the DOJ is the unlawful-employment provision of the IRCA that punishes employers who employ or continue to employ workers they know to be unauthorized aliens. 8 USC Section 1324a. The stated purpose of Section 1324a was “to close the back door on illegal immigration … . The principal means of closing the back door … is through employer sanctions.”

A violation of the Unlawful Employment Statute has a very different outcome from a harboring violation. It generally results in civil penalties. The worst outcome occurs if the hiring is part of a “pattern or practice” — something fairly easy to establish for most businesses that hire unauthorized workers. It can be charged as a misdemeanor with penalties of up to $3,000 per unauthorized alien, and six months in jail for the entire pattern or practice. Because it is a misdemeanor, it cannot serve as the basis of a forfeiture complaint.

Which one of these two statutes is charged can, therefore, be very important — especially in the age of the Yates Memo in which, on Sept. 9, 2015, then Deputy Attorney General Sally Yates directed the rank and file in the DOJ to focus on the individual actors, rather than simply negotiating a plea or deferred prosecution agreement with the company while giving the executives a pass. See, e.g., http://bit.ly/2ckSFaw.

In addition to the harboring and employment cases, the DOJ and ICE have started to focus on visa fraud as another avenue for stepping up prosecutions; specifically, with regard to the outsourcing industry. Given the new President's stated focus on jobs for U.S. workers, this area of enforcement will likely increase as well.

On Oct. 29, 2013, Infosys, an Indian outsourcing company, agreed to pay $34 million in civil fines as a result of a DOJ and ICE investigation into visa fraud — specifically, fraudulent applications for H-1B visas. H-1B visas allow a company to bring its own workers to the United States to work on projects for the company. There is little concern regarding displacement of U.S. workers because it is work to be done by an existing employee of the foreign entity. Infosys was submitting H1-B applications for Indian workers and representing that they were coming to the United States to work for the company. In fact, these H1-B recipients were coming to the United States to work for Infosys clients, potentially taking the place of U.S. workers. See also http://bit.ly/2jbzsO5.

Since the Infosys case, there have been additional H-1B visa fraud cases. See SCM Data Inc and MMC Systems, Inc. (USAO D.N.J. Sept. 26, 2016). The outsourcing industry, in particular, needs to implement compliance programs to make sure the correct visa is being requested for the right position. Employers using such services should also be mindful. Aiding and abetting visa fraud is also a crime.

Finally, the DOJ can employ tax statutes (failure to withhold-26. USC 7202); false statement statutes (18 USC 1001); aiding and abetting identity theft (cite 18 USC 1028); and even securities fraud statutes when the company is publicly traded and its annual statements do not disclose the risk of hiring unauthorized workers in that particular industry. See, e.g., the SEC investigation of Chipotle.

How Do Investigations Start?

An ICE investigation of an employer is likely to be triggered by any of the following: 1) a poor I-9 audit by ICE; 2) the loss of a bid by an angry competitor that blames the loss on the other employer's lower employment costs which, the angry competitor believes, are due to the winner's employment of unauthorized workers; 3) angry union workers being replaced by an open-shop contractor; or 4) an unauthorized worker picked up by ICE who decides to cooperate in order to get a U visa — also known as a “snitch” visa — which would allow the alien to both stay and work in the United States during the pendency of the case.

Furthermore, if the Internal Revenue Service (IRS) sees a high number of tax identification numbers (TINS) rather than Social Security numbers identifying the work force, the TINS will be rejected and the matter referred to IRS Criminal Investigation Division (CID) and potentially ICE. Similarly, if IRS CID gets a lot of complaints from irate taxpayers about income they did not earn from the same employer, a red flag will be raised that the employer is hiring a lot of employees with stolen Social Security numbers. That may result in a referral to ICE.

Proactive Steps

What can an employer in a high-risk industry do to protect herself and her company? First, since many criminal investigations have their seed in a poor I-9 audit, a good start is to conduct one internally. Evidence of lax or sloppy I-9s can often lead from a civil audit to a criminal investigation. Second, although anti-discrimination laws prevent an employer from questioning an applicant or employee about his or her citizenship status, once there is a red flag, the employer should consider whether an inquiry would constitute discrimination or appropriate due diligence. That said, those red flags should be set forth in an employment manual such that the company's Human Resources department will not be tempted to engage in discrimination, but will limit instances of inquiry to those where it is necessary to protect the employer. For example, when an inquiry comes in from the Criminal Investigative Division of the IRS noting that an employee is using a Social Security number that is being challenged by another taxpayer as not belonging to your employee, the employer should not only respond to the IRS, but should seriously consider investigating the status of that employee.

Many employers have either chosen or have been required, as federal contractors, to enroll in E-verify, the government's system to check an employee's eligibility to work. One of President Trump's campaign promises was to require all employers to register for E-Verify. Unfortunately, what has happened to those employers who have instituted E-Verify is this: Rather than hiring employees with seemingly valid Social Security numbers that turn out to be ones never issued, applicants, to pass E-Verify, are more likely to use real stolen Social Security numbers and work authorization documents. This has resulted in more IRS CID inquiries, as the true taxpayer — finding himself taxed for income he never made — contacts the IRS. The need to be vigilant when such inquiries come in is therefore important for all employers.

Finally, every employer in a high-risk industry should have a “plan B” in place. If a raid should occur, a protocol should be in place as to who to call (criminal defense and immigration counsel) and how to replace employees who could be swept up in such a raid.

***** Jacqueline C. Wolff, a member of this newsletter's Board of Editors, is a Partner and Co-chair of Manatt, Phelps & Phillips LLP's Corporate Investigations and White Collar Defense Group.